Cost of another rail catastrophe could outstrip compensation fund
Critics say Ottawa is lowballing its demands for railway insurance and oil industry payments to a disaster fund.
March 11, 2015
By Jessica McDiarmid
New federal legislation to boost insurance requirements for railroads and create a disaster compensation fund may fall far short of the estimated costs of a catastrophic incident in a densely populated region like Toronto.
The federal government last month introduced a bill to increase the amount of insurance railways must carry to cover costs in the event of a derailment.
The bill relies on information from Transport Canada, which says the amounts for insurance and compensation are based on analyses of historical accident costs and risks.
Transport Canada officials say those analyses must be secret.
But a U.S. government study of trains carrying crude oil and ethanol sheds light on potential costs, predicting the financial toll of a major derailment in a densely populated area could go far higher than the amounts set out in the federal bill. Toronto, and much of the urbanized GTA, would be considered a densely populated area.
Transport Minister Lisa Raitt introduced the bill in February, which requires railroads carrying high volumes of dangerous goods to have at least $1 billion in liability coverage - a requirement that Canada’s two largest carriers, Canadian National and Canadian Pacific, already meet or exceed.
Smaller companies will need between $25 million and $250 million in insurance, depending on the dangerous goods they move.
And the legislation will form a $250-million compensation fund to help cover costs of a crude oil disaster.
But the July 2014 study by the U.S. Department of Transportation predicted that if a single catastrophic derailment, such as the July 2013 crash in Lac-Megantic, Que., occurred in a densely populated area, the financial toll could reach nearly $6 billion, and the death toll could top 200 people.
In its refusal to release its own analyses of potential disaster costs in Canada, Transport Canada cites commercial confidentiality.
NDP transport critic Hoang Mai said he’s asked for risk assessments that would outline the toll of potential disasters in Canada to be made public, to no avail. Without that information, it’s difficult to determine whether the amounts set in the legislation are sufficient.
“There’s a lack of information,” said Mai. “We’re not getting the information we want from Transport Canada or the government.”
The final costs of the fiery derailment in Lac-Megantic, when a runaway oil train skipped the rails and exploded, could be as high as $2 billion, according to the town’s mayor. The company involved - Montreal, Maine and Atlantic - was insured only to $25 million, leaving all levels of government to pick up the tab.
In Northern Ontario alone, the past month has seen two fiery derailments involving crude oil near the community of Gogama, about 80 kilometres south of Timmins. Crude oil tank cars also burst into flames in recent derailments in West Virginia and Illinois.
Canadian Pacific’s rail line runs through the heart of Toronto, parallel to Dupont St. While railroads refuse to release information publicly about the dangerous goods they carry, citing security concerns, a Star investigation found that dangerous goods such as crude oil, radioactive materials and toxic chemicals regularly trundle through the city. The Canadian National main line runs north of Toronto near Highway 407, also passing through densely populated GTA communities.
Helen Vassilakos, co-founder of a Toronto community organization pushing for better rail safety, said neither the insurance requirements nor the $250-million compensation fund are adequate.
“This is clearly not enough to cover the cost of a catastrophic derailment in a densely populated area,” said Vassilakos. “We’d be curious to know where the numbers came from. Where did they come up with this; how did they decide that this is enough?”
Transport Canada spokesperson Ben Stanford said in an emailed response to questions that the department based new insurance requirements on an analysis of historical accident costs, including an actuarial analysis, along with risks associated with transporting various dangerous goods.
The analyses, however, will not be released to the public because historical accident data “contains commercially confidential information.”
The levy on crude oil shippers to create the $250-million compensation fund, accumulated over five years, is meant to “generate sufficient resources to allow the fund to cover the costs of the vast majority of accidents when combined with railway insurance requirements, while not placing an undue burden on the industry,” he wrote.
“It is important to note that damages covered by the fund would be fully compensated and, should the fund be depleted, the proposed legislation allows the government to provide any additional resources required to cover these costs, which would then be repaid through the levy,” Stanford wrote.
That means that if the costs of an incident exceeded the total of the rail company’s insurance and the fund, the government would pick up the slack until it could be repaid by a replenished fund. At the accumulation rate of $250 million every five years, it would take 35 years for the government to recover what it has paid for the Lac-Megantic disaster, said Toronto-area NDP MP Mike Sullivan, who sits on the federal Standing Committee on Transport, Infrastructure and Communities.
“In our view, the bill doesn’t go far enough,” said Sullivan. “Clearly there will be more disasters long before 35 years is up, based on (the derailment) in Gogama on the weekend.”
As of now, the compensation fund only applies to incidents involving crude oil, though other hazardous materials can be included later.
The legislation would compel railways to inform the Canadian Transportation Agency, which is responsible for granting them permission to operate, of any changes that might affect their coverage. The CTA would also be given power to penalize railways for non-compliance, with fines as high as $100,000.
Toronto Councillor Josh Matlow (open Josh Matlow's policard), who represents a ward cut through by CP’s rail line, said it is a good thing to make rail companies pay for the consequences of disasters.
“But it doesn’t seem to come close to how much the actual costs would be in a larger urban area like Toronto,” said Matlow. “I think we’re looking in the many billions, rather than what the government is suggesting.”
He said the top priority should be preventing a disaster in a densely populated area in the first place.
“The reality is that we are seeing derailments happening on a frighteningly regular basis,” said Matlow.
“Ultimately, I think it’s fair to question whether these dangerous goods should be hauled right through the heart of Canada’s largest city and through its most densely populated neighbourhoods.”
U.S.-based rail consultant Fred Millar said the new legislation is simply a means to keep railroads operating as usual, rather than making significant changes such as requiring re-routing of dangerous goods around densely populated areas.
“It’s kind of a flimflam, looking like a stronger regulation, but it’s really designed to help an ultra-hazardous industry keep ’em rolling,” Millar said. “And the public safety is still going to be in danger.”
The Canadian rail network has far fewer lines, and thus options, for rerouting cargo away from urban centres than the U.S. one.
The Railway Association of Canada, an industry group representing railways, said it’s still reviewing the legislation with its members. The association has already pushed to have all dangerous goods, along with crude oil, covered in the shipper-paid compensation fund.
Under common carrier obligations, railroads are forced to transport dangerous goods whether they want to or not, said spokesperson Alex Paterson.
“We believe all dangerous goods should be included in the shipper-financed fund, to be used in the event of an incident involving dangerous goods,” said Paterson.
Mississauga fire chief Tim Beckett, whose city saw the largest peacetime evacuation in North American history when a rail tank car carrying chlorine sprung a leak decades ago, said the “step forward” is encouraging, but the city would like to ensure coverage for all rail incidents regardless of the product involved or the type of incident.
“Moreover,” Beckett said, “we would like to see greater emphasis on prevention of these incidents from happening in the first place, through increased safety and monitoring measures.”